3.	Acquisitions

Acquisitions during the first quarter of 2014 were accounted for in accordance with Accounting Standards Codification (ASC) No. 805, Business Combinations, and the results of operations of each acquisition have been included in our consolidated results of operations from the respective date of the acquisition. Each of the acquisitions was not material, either individually or in the aggregate to our results of operations in the period of acquisition.

While we use our best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. We record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.

The total purchase price allocated to the tangible assets acquired is assigned based on the fair values as of the date of the acquisition. The fair value assigned to identifiable intangible assets acquired is determined using the income approach which discounts expected future cash flows to present value using estimated assumptions determined by management. We believe that these identified intangible assets will have no residual value after their estimated economic useful lives. The identifiable intangible assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets.

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, is recorded as goodwill and primarily reflects the value of the synergies expected to be generated from combining our and the acquired entities’ technology and operations. Goodwill recorded in connection with the acquisitions is deductible for income tax purposes.

Acquisition of SkyFence Networks Ltd.

On February 7, 2014, the Company acquired SkyFence Networks Ltd. (“SkyFence”), a private company based and incorporated in Israel. SkyFence is a developer of a solution which allows real time visibility and control over corporate use of software-as-a-Service (“SaaS”) applications, which enforces security policy, protects sensitive data from external and inside threats, as well as ensures compliance with standards.

Per the terms of the acquisition agreement (as amended) with SkyFence and its security holders, we purchased all of the outstanding shares of capital stock of SkyFence in exchange for (a) approximately $8.6 million in cash, in addition to a holdback payment commitment due 24 months from the acquisition close valued at approximately $7.2 million, and (b) 884,422 shares of Company common stock, of which 532,262 shares are subject to forfeiture based upon time-based vesting and continuing employment, and were therefore excluded from purchase consideration as such amounts will be recorded as compensation expense over the term of the corresponding four-year service period. In addition, 29,871 of the shares are subject to a holdback period of up to 24 months from the date of acquisition. We also assumed stock options outstanding in accordance with the terms of the applicable SkyFence stock option plan and SkyFence stock option agreement relating to that SkyFence stock option. Based on SkyFence’s stock options outstanding at February 7, 2014, Imperva converted options to purchase 164,000 shares of SkyFence stock into options to purchase 24,248 shares of Imperva common stock.

The fair value of Imperva’s shares issued is based on Imperva’s closing price per share of $59.08 as reported on the New York Stock Exchange at the closing of the Acquisition on February 7, 2014.

The fair values of the stock option awards assumed were estimated using a Black-Scholes option-pricing model. The estimated fair values of unvested equity awards of $1.1 million will be recorded as operating expense over the remaining requisite service periods as they relate to post combination services, while the fair values of vested equity based awards of $0.3 million were included in total purchase price as they relate to pre combination services. The total purchase consideration is as follows (in thousands):


Cash	$	8,558
Cash holdback liability		7,157
Fair value of common stock		20,855
Estimated fair value of equity awards assumed and replaced		354

	$	36,924

The acquisition of SkyFence was accounted for in accordance with the acquisition method of accounting for business combinations with Imperva as the accounting acquirer. We expensed the related acquisition costs in the amount of $0.9 million in general and administrative expenses. In addition, compensation expense totaling $1.2 million was recognized from the date of acquisition through March 31, 2014.

Management believes that the goodwill represents the synergies expected from combining the products and technologies of Imperva with those of SkyFence, which will enhance the Company’s overall product portfolio. The purchased technology will be amortized straight-line over a seven-year preliminary estimated useful life. Also as part of the acquisition, we assumed deferred tax liabilities related to the fair value of the developed technology we obtained in the acquisition. Goodwill recorded in connection with the acquisition is not deductible for income tax purposes. The total purchase price was allocated using the information currently available. As a result, we may continue to adjust the preliminary estimated purchase price allocation after obtaining more information, in particular deferred taxes may be subject to change as additional information is received and tax returns are finalized. The following table summarizes the allocation of the consideration to the fair value of the tangible and intangible assets acquired and liabilities assumed as of the acquisition date (table in thousands):


Net tangible assets	$	1,014
Existing technology		7,965
Deferred tax liability assumed		(1,528	)
Goodwill		29,473

Total purchase price	$	36,924

The results of operations of SkyFence described above have been included in Imperva’s consolidated financial statements from the date of acquisition. The following table presents pro forma results of operations of the Company and SkyFence as if the companies had been combined as of January 1, 2013, and includes pro forma adjustments related to the amortization of acquired intangible assets and share-based compensation expense and the related income tax effects. Direct transaction costs are excluded from the quarter ended March 31, 2014 pro forma condensed combined financial information presented below. For pro forma purposes, during the three months ended March 31, 2014 and 2013, $259,000 and $124,000, respectively, of income tax benefit associated with the deferred tax liability was recognized in earnings. The pro forma condensed combined financial information is presented for informational purposes only. The unaudited pro forma results of operations are not necessarily indicative of results that would have occurred had the acquisition taken place at the beginning of the earliest period presented, or of future results. Included in the pro forma results are fair value adjustments based on the fair values of assets acquired and liabilities assumed as of the acquisition date. Supplemental information on an unaudited pro forma basis, as if the SkyFence acquisition had been consummated on January 1, 2013 is presented as follows (in thousands):


	Three months ended March 31,
	2014			2013
Pro forma revenue	$	31,516		$	28,585
Pro forma loss from operations	$	(18,609	)	$	(8,795	)
Pro forma net loss	$	(18,136	)	$	(8,845	)

Acquisition of Certain Assets and Liabilities of Tomium Software, LLC.

On January 30, 2014, the Company acquired certain assets and liabilities of Tomium Software, LLC (“Tomium”), a private company based in Texas. Tomium is a provider of real-time mainframe security auditing agents. The purchase price of approximately $8.3 million includes approximately $4.6 million in cash and assumption of a liability to pay cash of $0.3 million, and also the issuance of 60,556 shares of Company common stock valued at approximately $3.4 million based upon the closing price of the Company’s stock on the acquisition date of $55.45 per share. Imperva acquired certain tangible assets and also assumed a facility lease of Tomium.

The following table summarizes the preliminary allocation of the consideration to the fair value of the tangible and intangible assets acquired and liabilities assumed as of the acquisition date (amounts in table in thousands):


Intangible assets	$	2,704
Goodwill		5,499

Total intangible assets acquired		8,203
Other acquired tangible assets		60

Fair value of assets acquired	$	8,263

The total purchase price was allocated using the information currently available. As a result, we may continue to adjust the preliminary estimated purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed, and revision of our preliminary estimates. Goodwill recorded in connection with the acquisition is deductible for U.S. income tax purposes.

The acquisition of Tomium was accounted for in accordance with the acquisition method of accounting for business combinations with Imperva as the accounting acquirer. We expensed the related acquisition costs, consisting primarily of legal costs in the amount of $0.3 million in general and administrative expenses. Management believes that the goodwill represents the synergies expected from combining the acquired technology and operations with those of Imperva. The intangible assets acquired by Imperva in conjunction with the acquisition of Tomium are being amortized straight-line over a ten-year estimated useful life.

The results of operations related to the Tomium assets and liabilities have been included in our consolidated statements of operations from the acquisition date. Pro forma results of operations have not been presented because the acquisition was not material to our results of operations.